HMRC loses NHS case over VAT on parking charges

HMRC loses NHS case over VAT on parking charges

Mar 6, 2024

HMRC has lost a landmark case against an NHS Foundation Trust, which affects 50 other related cases, costing the tax authority an estimated £70m

The case at the Court of Appeal was brought by Northumbria Healthcare NHS Foundation Trust, after failing at the First Tier Tribunal (FTT) and Upper Tribunal.

The Trust argued that it was exempt from paying VAT according to the Principal VAT Directive (PVD) and the Value Added Tax Act 1994 (VATA).

The first appeal was brought in 2017 and related to three years of HMRC charging the Trust VAT at the standard rate of 20% on its car parking fees from 2013 to 2016. The outcome of the case is only relevant when the Trust itself is operating the car park, and not outsourcing the management of the car park to a third party.

The Trust operates 14 hospitals and provides pay-and-display car parking at up to £6 for 24 hours, which generates additional income to ‘better carry on its principal purpose’.

Over the three years, Northumbria Foundation Healthcare Trust believed it should be owed £267,443 in VAT. With hospitals making £146m in patient and visitor parking in 2022-23, if the 50 other trusts with claims follow suit in this case, the total VAT refund is likely to reach up to £70m.

The case at the Court of Appeal revolved around three grounds. Ground one stated: ‘The Upper Tribunal erred in concluding that the Trust did not supply car parking under a special legal regime’ and, secondly, failed to ‘correct the FTT’s application of an incorrect test for determining whether there was a distortion of competition; and a significant distortion of competition’.

On ground three of the appeal, the Trust stated that: ‘The Upper Tribunal erred in concluding that there was sufficient evidence to entitle the FTT to conclude that HMRC had discharged the burden of proof on the distortion of competition issue.’

HMRC argued that Trust car parks were not public authorities, which are usually not taxable for VAT purposes. It also did not recognise that the Trust was a body governed under public law. The Court ruled against this and remade the decision of the lower tribunals.

The appeal judges, Lady Justice Asplin, Lord Justice Green and Lady Justice Falk said that the hospital car parks were provided by the Trust and therefore a public authority, and that ‘HMRC has not demonstrated that non-taxation would lead to significant distortions of competition’.

HMRC said it was continuing to engage with NHS bodies to discuss the effects of the hearing but believes that applying tax should be done consistently.

An HMRC spokesperson told Accountancy Daily: ‘The tax rules apply to everyone and we discharge our responsibility across all sectors fairly and evenly. We are considering the judgement.

The Court of Appeal allowed the appeal from Northumbria Healthcare NHS Foundation Trust, setting aside the decisions at both tribunals, meaning HMRC has to repay the VAT from the three years in question.